The Financial Reporting Council (FRC) has overhauled its UK Stewardship Code application process and announced five new priority areas of review, including reducing the reporting burden on existing signatories.
The council engaged with over 1,500 stakeholders earlier this year, and as a result, has revealed five themes of the Code. The first is ‘Purpose’, where the FRC will consider all stakeholder views and set out its expectation of what defines effective stewardship, what this looks like in practice, and how reporting using the Code can help to deliver this.
The second is ‘Principles’, which outlines what reporting is necessary. The third is ‘Proxy Advisers’, where the FRC will consider how the Code will support greater transparency. The fourth is ‘Process’, whereby proposals will be taken forward to reduce the reporting burden currently associated with being a Code signatory. Further, it will ensure all information included in reports is useful and accessible to all underlying investors and other stakeholders.
Lastly, the fifth priority is ‘Positioning’. This addresses how the FRC works with regulators such as the DWP, TPR and the Financial Conduct Authority (FCA), to successfully implement the revised Code and avoid any confusion that signatories may encounter.
Reducing the reporting burden
Further, the FRC is also making five changes to reduce the reporting burden on existing signatories. These changes will: remove the requirement to annually disclose all ‘Context’ reporting expectations; remove the requirement to annually disclose against ’Activity‘ and ’Outcome‘ reporting expectations for some principles; allow the use of content from previous reporting and cross-referencing; set clear expectations of what is considered an ‘outcome’ for stewardship purposes; and emphasise the ability to exercise reporting against Principles 10, collaborative engagement, and 11 escalation ‘where necessary’.
This will provide clarity on areas signatories outlined as challenging to address, reduce the volume of reporting and provide flexibility for signatories in defining how they undertake stewardship.
These reporting changes to the Code will apply to the next application window (31 October 2024) and the FRC will be writing to signatories individually to inform them of how these changes impact them.
Richard Moriarty, chief executive of FRC, said: “The UK Stewardship Code is an important driver of the UK investment stewardship eco-system, safeguarding the interests of all savers and pension holders by promoting the transparency and accountability of investors stewardship activities and decisions, as well as being adopted by global investors.
“However, it is right that we continue to challenge ourselves to ensure that the Code is operating in a way that is proportionate and minimises reporting burdens on signatories and supports the growth and effectiveness of the UK capital markets. The next stages of the review announced today follow extensive engagement with our stakeholders and are designed to encourage the alignment of the Code with the UK’s well-deserved reputation as an attractive investment destination for global capital.
“It is our ambition that pension holders and savers better understand contributing to their pensions and savings to how stewardship activity and decisions are undertaken to their benefit, by the asset managers and owners investing on their behalf.”
Lindsey Stewart, director of investment stewardship research and policy at Morningstar Sustainalytics, added: “While sentiment toward the FRC’s Stewardship Code remains positive overall, a number of preparers of the Stewardship Code reports have mentioned that the current reporting format requires the repetition of information provided in other reports, or annual updates on policies and activities that may have changed little since the last report.
“It looks like the FRC has listened to that feedback and taken some practical steps to ease the impact of those requirements. Anything that enables stewardship professionals to devote more time to engaging with companies and other issuers instead of preparing reports has to be a good thing.”
Just Group becomes a signatory
The FTSE-listed financial services retirement specialist, Just Group, has been listed as a signatory of the UK Stewardship Code by the Financial Reporting Council (FRC).
The UK Stewardship Code sets stewardship standards for those investing money on behalf of UK savers and pensioners. To be listed as a signatory to the Code, businesses must demonstrate how it has applied the Code’s principles in the last 12 months.
Just Group has demonstrated its commitment to responsible investment. The company became the first UK asset owner to join the Principles for Responsible Investment (PRI) and the first UK insurer to issue a green bond.
Further, it is a member of the Net-Zero Asset Owner Alliance, the Asset Owner Diversity Charter, committed to the Science Based Targets initiative and has a detailed Transition Plan to net zero.
Nimisha Sodha, head of responsible investment at Just Group, said: “As a UK insurer managing over £24bn ($31bn) of customers’ retirement savings, we are committed to making a positive impact through our investment activities, leaving a responsible footprint and creating a fairer world. We help people achieve a better later life and our stewardship and approach to responsible investment is fulfilling our purpose.
“Responsible investment brings significant, sustainable benefits for the economy, environment and society. Becoming a signatory of the UK Stewardship Code marks a significant milestone in our commitment to meet our target of being net zero in all our emissions, including our investments, by 2050.”
